All posts for the month December, 2017

This is the first in a series of articles that aim to define the biopharmaceutical industry’s social contract with America, to examine practices that deviate from that contract, and to propose refinements to healthcare policy to ensure that our continued investment in scientific progress ultimately yields affordable, effective therapeutics for future generations.

The public has long voiced outrage at pharmaceutical companies over high drug prices. Many patients feel the real pain of rising healthcare costs and frequently call for price controls on prescription drugs. But price controls are not the solution. In fact, high prescription drug prices aren’t even the problem.

Miscast as a bloated expenditure, high prices on branded drugs incentivize and attract society’s talent and capital to the biopharmaceutical industry to fund and research new cures and treatments that will eventually become inexpensive generic drugs. These resulting generics are one of humanity’s most valuable and underappreciated resources.

High branded-drug prices are necessary to grow this mountain of inexpensive generic drugs. At the same time, we can’t allow anyone’s child or aging parents to be denied the medication they need on account of cost. The reason why new drugs seem unaffordable lies not with branded drug prices but with the intentionally poor design and distribution of healthcare insurance in our country. Branded drugs can be made more affordable — without imperiling biopharmaceutical innovation — by ensuring that insurance properly covers patients, sparing them the euphemism of cost sharing (e.g. co-pays and deductibles).

Besides shielding patients from drug costs and improving immediate health outcomes, this proposal will drive the scientific innovation needed to build a legacy of inexpensive treatments for future generations. Alongside other grand objectives like universal access to clean water and energy efficiency, building this mountain of useful generic drugs as rapidly as possible should be a national and global priority, one that America has led and should continue to lead. If we stall this engine of progress through price controls or other blunt measures meant to ease costs today, we condemn the future to be no better than the present. In turn, the biopharmaceutical industry should do its part to ensure all branded drugs are eventually and adequately genericized.

An underappreciated resource

While high-priced branded drugs make up only 11% of all prescriptions¹, they are the source of most pharmaceutical revenue ($237 billion in 2015²). Typically after 10–15 years, branded drugs lose their patent protection, unleashing low-cost generic versions³ (in 2015 the US spent a comparatively modest $88 billion on generics, though these drugs make up 89% of all prescriptions⁴). Unlike almost any other aspect of healthcare, drugs constantly go generic, which keeps total spending on retail drugs around a mere 12% of total healthcare costs, about the same as it was in 1972.⁵ And even though drug spending remains the same percent of overall healthcare spending, we now have far more and better treatments.⁶

Each year, the biopharmaceutical industry produces new drugs that raise our collective health, give hope to patients suffering from debilitating diseases, and further our understanding of human biology. Because the underlying biological processes inside our cells and bodies are essentially unchanging, the drugs we use today will work just as well in a hundred years, with few exceptions (e.g. antibiotics become obsolete and require replacement as bacteria evolve to become resistant). Many drugs may even work better with improved diagnostics, delivery technologies, and insight into how to best combine therapies. Therefore, much of the scientific progress we achieve in our lifetime will also accrue to the benefit of future generations.

Generics, which the FDA ensures work just as well and meet the same safety standards as original branded drugs, offer huge cost savings within months of coming to market and, with few exceptions, remain inexpensive for the rest of time.⁷

We need only look to the past to understand what progress can be made. Too often, we discount the ingenious tools for preventing, treating, and curing diseases that have made America and the whole world richer.⁸ Over the last hundred years, advancements in medicine, particularly perinatal care, vaccines, and antibiotics, as well as hygiene and nutrition contributed to the nearly 30 years added to the average American’s life expectancy.⁹ Over the same period, global life expectancy doubled.¹⁰ Quality of life also improved with groundbreaking treatments for heart disease, pain, diabetes, and many

Cholesterol-lowering statins alone have contributed to the 50% decrease in death from both heart attacks and strokes throughout the developed world over the last few decades. When Pfizer’s patent on the best-selling statin Lipitor expired and generic versions entered the market, the price quickly dropped by 95% of the initial cost and has remained comparatively negligible ever since.¹² Gleevec, a highly successful drug that restores many years of life to patients suffering from chronic myelogenous leukemia (CML) and other cancers, has also recently gone generic, resulting in its price trending steadily downward. Today, our generic drug armamentarium includes treatments that manage blood pressure (ACEs, ARBs), cholesterol (statins, fenofibrate), diabetes (metformin, insulin), migraines (triptans, acetaminophen, NSAIDs), inflammation (steroids, methotrexate, 5-ASAs), chronic pain (gabapentin, tramadol), depression (SSRIs), schizophrenia (atypical antipsychotics), heartburn (H2 blockers, PPIs), hypothyroidism (levothyroxine), infections (antibiotics), enlarged prostate (alpha-blockers), insomnia (sedatives), ADHD (stimulants), Parkinson’s (dopaminergics), and cancers (anti-estrogens, anti-androgens, chemotherapies), as well as treatments that prevent heart attacks and strokes (blood thinners, anti-arrhythmics, beta-blockers). These represent just a glimpse of the medicines that biopharma can offer to humanity in this century if we continue to fuel and incentivize this industry.

The collective armamentarium of branded drugs will mostly be generic within 10–15 years and will add to our high-value, low-cost arsenal. These include better treatments for many of the conditions mentioned above as well as breakthrough therapies or cures for cystic fibrosis, HIV, Hepatitis C, and many cancers. Yet so many problems remain to be solved. We must discover how to treat and cure diseases that run from uncomfortable to excruciating to devastating. Initially expensive, these drugs will soon enough go generic and join our growing mountain of cost-effective medications.¹³

Branded drugs are worth the cost

Branded drug expenditures represent 1.8% of the US GDP.¹⁴ That’s a little more than a tenth of total healthcare spending and less than the 2.4% of GDP spent by the US government on roads, drinking water, and wastewater infrastructure, which few dispute as necessities worthy of investment.¹⁵ But because health insurance plans, including Medicare, engage in aggressive cost-sharing requiring co-payments as high as 20% of the price of a drug, vulnerable patients disproportionately carry the burden of building our common stockpile of generic treatments.¹⁶

Increased infrastructure investment stands as one of the last few areas of clear bipartisan agreement.¹⁷ We know that we need functional roads and water and sewage treatment facilities. We may even know that infrastructure spending will result in more jobs when Americans fix our roads and bridges.¹⁸ And yet, all this holds true for the drug industry: we all will eventually need what the millions of people employed directly or indirectly by the biopharmaceutical sector can create for us.

High-priced branded drugs power this entire biopharmaceutical ecosystem.¹⁹ Drug price controls would imperil it, signaling that some or even all the people involved should do something else for society, perhaps work in a different industry. Therefore, before we accidentally hobble or dismantle the biopharmaceutical industry in an effort to make today’s high-priced drugs cheaper as quickly as possible, we need ask whether branded drugs are “worth it” — essentially whether their price matches their value.

To understand a drug’s true value, consider each person that it will help as a branded drug in the present and as a generic in the future. Medicine has influenced every dimension of our lives, contributed to the advancement of art and technology that permeates our civilization by allowing innovators to live longer and healthier lives, and impacts our social fabric in immeasurable ways. Even a modest medical breakthrough that will someday go generic offers society high value for low cost.²⁰ We can collectively afford to make this investment.

This promise to create a mountain of low-cost therapies forms the core of the compact between drug developers and patients, which is to say all of us. Social contracts can be explicit, such as when Americans gave their representatives the power to govern them within the democratic precepts of the Constitution and the Declaration of Independence. In other instances, social contracts become implicit agreements between company and consumer. Google’s memorable motto “Don’t be evil” (now “Do the Right Thing”) became an implied promise to the user that “in exchange for using our services, we won’t do anything monstrous with the power you’ve given us.” Biotech operates on its own social contract with the American patient: “Yes, prices will be initially high on branded drugs. But after a patent expires, you enjoy the benefits of the cheap, effective generic versions for the rest of time.”

Others have proposed the notion of a social contract, notably with emphasis on keeping branded drug price increases in check while they are patent-protected.²¹ But as long as a drug ultimately will go generic, it’s not all that critical to the long-run price/value assessment whether it starts off at a lower price, climbs, and then goes generic, or if it starts off at a higher price, stays flat, and then goes generic.

Genericization without undue delays is the only critical feature of the contract. Consider the biopharmaceutical industry as putting novel branded drugs on a conveyer belt that over 10–15 years transports them to the top of the generic drug mountain– that final moment when the drug goes generic and falls off the conveyer onto the eternal generic mountain is the ultimate fulfillment of the industry’s end of the social contract.

There is more work to do in this regard. In the case of Gleevec, its price has been floating gently down after it went generic rather than fallen off a cliff, as Lipitor’s did. FDA approval of more generics would help speed the fall. In the case of biosimilars — which are as close as we can scientifically come to making a generic version of complex drugs such as antibodies and enzymes that are manufactured in biological systems — we are only just beginning to witness and assess the market dynamics around adoption and price erosion. But considering the cost of biologics production is in most cases roughly 5–15% of a biologic drug’s price, biosimilars may eventually be sold for at least a 70% discount. Companies will pursue every legal means at their disposal to prevent the uptake of biosimilars, as we have seen many innovators do to forestall generic entrants.²² The generics industry and the Federal Trade Commission estimate that America is losing out on almost $10 billion of savings each year due to such stall tactics, which is a problem and makes for many galling headlines, but it’s also less than 3% of total drug spend²³. Arguably the industry as a whole can afford to solve this public relations headache by swearing off excessive cleverness, and regulators should pursue avenues to accelerate genericization without impacting innovation, but regardless, those stall tactics fail in the long run and prices fall as competition sets in, as they have been steadily falling for Gleevec and its generics. For the few drugs where no true generic could ever exist — say, in the case of certain cell or gene therapies — new pricing mechanisms for the synthetic genericization of such drugs can and should be created, adapting pricing schemes already in place for pandemic vaccines and other biodefense products.

If we agree that the high prices of branded drugs legitimately drive investment towards society’s ownership of more and better generics, then we also need to condemn those who steal generics away from society. Making sure that drugs go generic and thereafter remain inexpensive is the long-term value side of the social contract. Therefore, when a company takes a formerly inexpensive generic and raises the price well above the cost of production without improving the drug, that company violates the contract. Several companies have recently exploited loopholes that regulators should seek to close quickly, for example by accelerating the approval of more generics to keep prices down and making sure that generic manufacturers can access samples of an original drug to help them demonstrate the equivalence of their generic product, both of which the FDA has vowed to do.²⁴

Imagine though, that all new drug development stopped, and all current branded drugs immediately went generic, for example through price controls or by invalidating their patents. Total drug spending would fall by approximately 70%, resulting in a one-time 9% reduction in healthcare spending, equating to about 1.5% of US GDP. Within a few years though, healthcare costs would revert to previous levels due to the rising costs of hospitals, surgeries, and other non-genericizable services.²⁵ Meanwhile, our mountain of generic drugs would cease growing — the conveyer belt will grind to a halt. Therefore, in exchange for a modest and temporary savings in our collective budget, we would destroy biopharma’s innovative core that, as of this moment, is advancing new treatments for migraines, bone fractures, cancer, diabetes, and countless other diseases that send patients, young and old, to hospitals each year. As overall costs continued to grow, the public would realize what Congress and insurance companies already know: the bulk of healthcare costs stem from hospitals and services, none of which will ever go generic.²⁶

A call to end cost-sharing

Some argue that the biopharmaceutical social contract places responsibility on drug companies to make sure that patients have access to their drugs²⁷. This stance ignores the role of payers, private insurance companies as well as Medicare, in implementing high co-pays and other cost-sharing mechanisms to discourage patients from using medications that their physicians prescribe. The cost of most branded drugs could be cut in half and the majority of people in America still couldn’t afford to pay Medicare’s required 20% co-pay.

The tactics companies employ to try to make sure that patients can afford their share of the cost of a drug, such as co-pay assistance, are sometimes portrayed as bribes that companies pay patients to take their medications. Payers may worry that a pharmaceutical company has inappropriately marketed a drug, encouraging physicians to prescribe it to patients who don’t need it. When this happens, the government should prosecute and punish companies, but it’s inappropriate to cast suspicion on every doctor-patient interaction that results in a prescription for a high-priced drug and then, via cost-sharing, coerce patients into second-guessing their physicians. Many companies have programs to provide free drug to patients without insurance. And yet, many patients don’t realize that such programs exist, assume that they won’t be able to afford a drug, and don’t bother getting a prescription filled. Physicians are often too busy to explain the details of co-pay assistance to each patient. These barriers to access create their intended result: fewer patients fill prescriptions that their physicians write.

We have also entrusted our government and insurance companies to distribute the costs of healthcare across our population and across time so that people unfortunate enough to be sick don’t suddenly find themselves choosing between the branded drugs they need and their mortgage payments. Insurance practices in America conform to laws passed by our elected representatives. So if the politicians we elect to Congress allow insurance companies to turn away people based on pre-existing conditions or to charge high co-pays, then we have harmed ourselves.

A common complaint is that healthcare is more expensive in the US than anywhere else in the world but that our outcomes lag far behind.²⁸ This has little if anything to do with pharmaceuticals. On the contrary, the US enjoys faster approvals of innovative drugs, giving many US patients access to important medicines, such as cures for hepatitis C, years before they are used widely in Europe.²⁹ At the same time, the US makes the most use of generic drugs — more than any major healthcare market. While 89% of prescriptions filled in the US are for generics, throughout Europe generic utilization remains far lower, from Switzerland (17%) to France (30%) to Spain (47%) to Germany (80%).³⁰ Therefore, although Europeans pay less than Americans for branded drugs initially, they pay branded prices for longer because they don’t switch to generics as quickly as possible. As much as it is popular to cite how much more the US pays for a new drug, there are also many examples of older drugs for which Europe pays more. While the US has already cured many patients suffering from hepatitis C, for example, Europeans are spending more money on older, less effective treatments.³¹ Despite having the most advanced technologies, the US system, through cost-sharing, non-comprehensive insurance, and bureaucracy, makes healthcare unaffordable and practically inaccessible for some, which then weighs on healthcare outcomes for these individuals and also shows up in national statistics.³²

Copays and deductibles imposed upon patients force many to stop taking their medications as prescribed, leading to worse outcomes and higher long-term costs. Even small co-pays and fees — as low as $1 to $5 — reduce drug adherence and cause patients to avoid necessary care.³³ Approximately 50% of patients fail to adhere to their prescriptions due in part to high co-pays, while high deductibles push patients to cut out valuable preventative services. Greater cost-sharing is also associated with increased emergency room visits.³⁴ Low-income patients are often the most vulnerable. Indeed, the very term “cost-sharing” disguises what could be more aptly described as an institutionalized failure to insure.

If we truly hope to expand access and unburden patients of the financial hardship of getting sick, then rather than blaming the innovators for the prices of their newest drugs, let’s upgrade our insurance system to one that actually provides proper insurance to everyone. Spending should be spread more evenly instead of hitting patients with toxic cost-sharing when they are sick and most vulnerable. Cost-sharing just adds insult to injury. Imagine if, after being mugged, the victim had to make a co-pay to have the police show up.

Cutting out-of-pocket costs would lead to improved adherence, better health outcomes, and lower long-term healthcare spending, provided that physicians do not encourage patients to over-utilize an “all you can eat” healthcare system. While this is an important caveat, it does not justify cost-sharing, which shifts the responsibility of setting an appropriate level of care from knowledgeable physicians to distressed patients. Co-pays and deductibles are intended to make sure that individuals have some “skin in the game” and think twice before seeking unnecessary treatments. However, few patients can tell the difference between a necessary and unnecessary treatment when the person prescribing the treatment is a doctor.

If a doctor prescribes an expensive branded drug despite the availability of generics or less expensive but similar therapies, it makes sense to nudge patients towards switching. The problem is when payers try to discourage patients from taking uniquely beneficial drugs for which there are no substitutes. Behavioral economists conceded long ago that humans do not always behave rationally, often undervaluing their future selves. When insurers place significant cost burdens on a patient, they nudge individuals to indiscriminately reduce their use of both low-value and high-value treatments and services, often with costlier downstream consequences.

Specific private and government insurance practices were designed with high co-pays, maybe thoughtlessly or maybe heartlessly, to make patients believe that drugs are unaffordable. Yet, the 1.8% of GDP that America spends on branded drugs does not have to feel unaffordable to any of the people who need these medications, just as our nation’s road and drinking water infrastructures are considered a basic resource available to all.

Insurance companies should address overutilization of services and unnecessary prescriptions by confirming that physicians adhere to standard of care guidelines, not by underinsuring patients so they are financially discouraged from following their doctors’ advice. And insurers should align physician incentives with the quality of care rather than the quantity of care. Fortunately, there are many ongoing experiments being run by hospitals, physician networks, and insurers to figure out how to do just this.³⁵

A ‘fair price’ conundrum

Insurance only serves its function if everyone, especially healthy people, pays what they can. Just as taxes grow in proportion to income, insurance companies should ensure that an individual pays their highest rates during their highest income years, which also happens to be when they are younger and most likely to be healthy. It makes little sense to increase costs on people when they are older, have less income, and yet are most likely to need healthcare. The young, healthy, working-age population might not like paying more, but they will eventually find themselves in need of the medicines whose development they helped fund while they were younger. Until insurance functions properly, patients driven to desperation by cost-sharing will understandably find government-imposed drug-price controls appealing, regardless of the consequences to the biopharmaceutical ecosystem.

There has always been difficulty establishing a drug’s cost-effectiveness, a quantification of whether it is “worth it”. One can make the case that a patient with elevated cholesterol who skips treatment to save money will only end up costing himself, his family, and society more if he later suffers a heart attack, and that, therefore, the patient and society should rationally want the patient to get preventative treatment. However, the cold hard math of dollars spent and saved does not always support this conclusion because it depends on the cost of the treatment and the value one places on life. An oft-cited macabre bit of trivia is that smokers save taxpayers’ money on Medicare and Social Security by dying more quickly and earlier than non-smokers. If it were all about money, we should be encouraging smokers to keep lighting up. But we are using a calculus that heavily weighs well-being, which basically means that the benefits of healthcare are unquantifiable, at least in America. As a society, we have not come to terms with how to put a price on life (one could argue that the EPA sets the value of a statistical life at $10M in 2016, FDA just under at $9.5M, and the Department of Agriculture at $8.9M³⁶) and seem to believe that paying whatever it takes to treat or prevent pain, disability, and death is always the “right” choice, or at least the American choice. Anyone who puts money over life is considered heartless.

Yet we know that our inability to say “no” to effective medications on the basis of cost makes us vulnerable to price gouging, and we know that drug companies know this, calling into question whether drug companies are charging a “fair” price, even as we struggle to define what fair is. Some would argue that fair means pegging prices to the cost of drug development, calling for every company to disclose what it cost them to develop each drug. Others suggest it’s only fair to charge for a drug if it works, although in practice we often do not know if a drug is working for a specific patient.

Neither of these suggestions would be impossible to implement in some form and, through transparency, might even help make drug development more efficient. The drug industry’s profit margins are roughly 20%, which some say are too high. But we know that there isn’t room to reduce branded drug prices by half, for example, at least not without cutting salaries and laying off people. There are no doubt inefficiencies in every company, but which specific expenses are unnecessary is debatable. Profit margins appear modest for an industry accused of being a price gouging monopoly.

There is a good chance that, after every R&D expense has been audited by Congress and when companies are only allowed to charge for drugs that work, the industry will be found to be justified in charging a collective 1.8% of US GDP for branded prescription drugs. Where would the public outrage then turn? Maybe it will finally turn where it needs to focus, on the lack of universal insurance in America and the heartless practice of imposing cost-sharing on the sick and vulnerable. Inadequate insurance coverage and high co-pays are at the root of why patients go without. Insurance companies and government policies are standing in the way of patients accessing medications that could help them.

There would be less outrage if patients could count on their insurance plans to pay in full for whatever drug their physicians prescribed. Controlling the prices of the more expensive branded drugs is counter-productive and, in the long run, irrelevant, as long as those drugs will go generic.

The central element of the biopharmaceutical social contract, as we see it, has little to do with what price is fair for a branded drug. That’s an unwinnable debate and a search for unquantifiable value. Instead ask whether or not a drug will eventually go generic, offering society reassurance that there is an end in sight to the high cost of any new drug. Basically, whatever the branded price, that high cost is finite, whereas the value society will enjoy is infinite. Some might think that hepatitis C drugs approved since 2015 were indisputably overpriced, yet when the first hepatitis C drugs came to market, the public outcry over their high cost for a short course of treatment was hardly universal. Many articles pointed to how much more cost-effective these curative drugs were compared to previous HCV therapies or HIV medications that cost less but must be taken chronically. And the more productive the biopharmaceutical industry has become, the more likely it is that multiple competitors come to market with comparable drugs within a few years of one another, spurring some price competition even before generics set in, as has happened with treatments for hepatitis C, diabetes, and cholesterol management. It’s increasingly rare for any drug company to enjoy a monopoly for very long.

Indisputable price-gouging, like price-jacking an old generic drug, does happen, but on a comparatively small scale. These practices can and should be eliminated (the FDA has already taken steps to do so by approving generics more quickly). There may even be a role for price controls by having the government contract with manufacturers of old single-source generics (i.e. those supplied by just one company, usually because the residual demand for these older drugs is too small to sustain multiple competitors), ensuring a continuous supply at a modest profit margin.

Populist demands to cut drug prices may tempt some, but the innovative edge of the pharmaceutical industry is powered by the willingness of the US market to reward groundbreaking research. Even European pharmaceutical companies would likely not bother investing in the development of many kinds of new drugs if they couldn’t count on selling them in the US. Hitting the biopharma industry with price controls in reaction to understandable but misdirected outrage would only rob ourselves and our children of the compounded growth of our giant mountain of generic drugs. If we conflate investing in new drugs that we will someday “pay off” with simply spending money on expensive healthcare services (which never go generic), then we may make the wrong budget cuts and thereby only worsen our long-term costs and outcomes.

Consider a home mortgage. A borrower spends 15–30 years paying off a mortgage, typically while younger and employed. Those mortgage payments can be substantial, but once the house is paid off, it is lived in rent free and then passed down to children and grandchildren. By comparison to drugs, doctors, surgeries, and treatments such as dialysis are pure rent and will remain expensive forever — we can only hope to prevent the need for these expensive services with inexpensive drugs.³⁷ A heart bypass and a cardiac surgeon may never go generic, but cholesterol lowering statins, which prevent hospital admissions and even surgeries, will be cheap indefinitely.

When President Kennedy proposed that Americans send a man to the moon, he asked the country to boldly commit to a goal that would require substantial funding, partnerships between government and corporations, and immense intellectual capital. He explained that “in a very real sense, it will not be one man going to the moon — if we make this judgment affirmatively, it will be an entire nation. For all of us must work to put him there.”³⁸ Individual scientists and research teams will be the ones to discover the next generation of cures and treatments, but their successes will be the product of a collective societal effort. Just as the Apollo Program produced breakthroughs in engineering, computing, and our understanding of spaceflight, let us recognize that the high cost of today’s new drugs fuels and inspires the continued discovery of tomorrow’s medical advances, providing high-value, affordable generics that will benefit us all for the rest of time.

Acknowledgements: I’m grateful to Aaron Hiltner and Chris Morrison for their invaluable and substantive thought-partnership and drafting/editing and to everyone who engaged with me in the constructive debates that led up to this article.

Peter Kolchinsky, PhD

Peter Kolchinsky is a founder, Portfolio Manager, and Managing Director at RA Capital Management. Peter is active in both public and private investments in companies developing drugs, medical devices, diagnostics, and research tools, and serves as a Board Member for various public and privately held companies, including Dicerna Pharmaceuticals, Inc. and Wave Life Sciences Ltd. Peter also leads the firm’s outreach and publishing efforts, which aim to make a positive social impact and spark collaboration among healthcare stakeholders, including patients, physicians, researchers, policy makers, and industry. He authored “The Entrepreneur’s Guide to a Biotech Startup” and served on the Board of Global Science and Technology for the National Academy of Sciences. Peter holds a BS from Cornell University and a PhD in Virology from Harvard University.

Important Disclosures for Readers

The opinions in this article are my own, subject to change, and may not reflect the opinions of RA Capital Management or anyone with whom I am affiliated. With regard to data and anything presented as fact, I’ve made an effort to be accurate and cite sources I believe to be accurate, but it’s possible I’ve erred or that my sources were inaccurate, in which case hopefully not in ways that materially impact the overall argument. If you think you’ve spotted an error, please contact me to help me improve my reasoning. While you probably already know this, regulations I’m beholden to as an investor nonetheless require me to remind you that nothing may turn out the way I want things to or predict that they might in this article, whether with a company, the healthcare system, or the economy in general. This article may reference specific companies to provide real-world examples of otherwise generalizable abstract concepts; nothing in this article is intended to be taken as investment advice in any company or in my firm. To help you judge my conflicts of interest, let me draw your attention to the possibility that I or my firm may have invested, may be invested, or someday may invest in the securities of companies mentioned in these articles. If I or my firm have a relationship or investment position in any company mentioned in an article, that would be specifically disclosed in the text of the article at the time of publication and will be accurate as of the time of initial publication but may change thereafter.

The shadowy cartel of doctors that controls Medicare.

On the last week of April earlier this year, a small committee of doctors met quietly in a midsized ballroom at the Renaissance Hotel in Chicago. There was an anesthesiologist, an ophthalmologist, a radiologist, and so on—thirty-one in all, each representing their own medical specialty society, each a heavy hitter in his or her own field.

The meeting was convened, as always, by the American Medical Association. Since 1992, the AMA has summoned this same committee three times a year. It’s called the Specialty Society Relative Value Scale Update Committee (or RUC, pronounced “ruck”), and it’s probably one of the most powerful committees in America that you’ve never heard of.

The purpose of each of these triannual RUC meetings is always the same: it’s the committee members’ job to decide what Medicare should pay them and their colleagues for the medical procedures they perform. How much should radiologists get for administering an MRI? How much should cardiologists be paid for inserting a heart stent?

While these doctors always discuss the “value” of each procedure in terms of the amount of time, work, and overhead required of them to perform it, the implication of that “value” is not lost on anyone in the room: they are, essentially, haggling over what their own salaries should be. “No one ever says the word ‘price,’ ” a doctor on the committee told me after the April meeting. “But yeah, everyone knows we’re talking about money.”

That doctor spoke to me on condition of anonymity in part because all the committee members, as well as more than a hundred or so of their advisers and consultants, are required before each meeting to sign what was described to me as a “draconian” nondisclosure agreement. They are not allowed to talk about the specifics of what is discussed, and they are not allowed to remove any of the literature handed out behind those double doors. Neither the minutes nor the surveys they use to arrive at their decisions are ever published, and the meetings, which last about five days each time, are always closed to both the public and the press. After that meeting in April, there was not so much as a single headline, not in any major newspaper, not even on the wonkiest of the TV shows, announcing that it had taken place at all.

In a free market society, there’s a name for this kind of thing—for when a roomful of professionals from the same trade meet behind closed doors to agree on how much their services should be worth. It’s called price-fixing. And in any other industry, it’s illegal—grounds for a federal investigation into antitrust abuse, at the least.

But this, dear readers, is not any other industry. This is the health care industry, and here, this kind of “price-fixing” is not only perfectly legal, it’s sanctioned by the U.S. government. At the end of each of these meetings, RUC members vote anonymously on a list of “recommended values,” which are then sent to the Centers for Medicare and Medicaid Services (CMS), the federal agency that runs those programs. For the last twenty-two years, the CMS has accepted about 90 percent of the RUC’s recommended values—essentially transferring the committee’s decisions directly into law.

The RUC, in other words, enjoys basically de facto control over how roughly $85 billion in U.S. taxpayer money is divvied up every year. And that’s just the start of it. Because of the way the system is set up, the values the RUC comes up with wind up shaping the very structure of the U.S. health care sector, creating the perverse financial incentives that dictate how our doctors behave, and affecting the annual expenditure of nearly one-fifth of our GDP.

It’s fairly common knowledge at this point that Congress does not allow Medicare to negotiate with pharmaceutical companies over the amount the government pays for their drugs. Each drug company simply sets a price for its own product, and Medicare either takes it or doesn’t. While that arrangement undoubtedly drives up Medicare spending—and health care spending more generally—it at least allows for some competition among the drug companies that manufacture similar products. But when it comes to paying doctors for the services and procedures they perform, the system is even more backward. In this case, Medicare actually asks the suppliers—the doctors themselves—to get together first, compare notes, and then report back on how much each of them ought to get paid.

Medicare is not legally required to accept the RUC’s recommended values for doctors’ services and procedures, but the truth is, it doesn’t have much of a choice. There is no other advisory body currently capable of recommending alternative prices, and Congress has never given the CMS the resources necessary to do the job itself.

The consequences of this set-up are pretty staggering. Allowing a small group of doctors to determine the fees that they and their colleagues will be paid not only drives up the cost of Medicare over time, it also drives up the cost of health care in this country writ large. That’s because private insurance companies also use Medicare’s fee schedule as a baseline for negotiating prices with hospitals and other providers. So if the RUC inflates the base price Medicare pays for a specific procedure, that inflationary effect ripples up through the health care industry as a whole.

Another, even more powerful consequence of this system is that while the prices Medicare and private insurers pay for certain procedures have increased—sometimes rapidly—the prices paid for other services have declined or stagnated. That’s largely because of basic flaws in the way the system is set up. For one, the RUC spends the vast majority of its time reviewing specialty procedures, which change more quickly as technology advances, rather than so-called “cognitive” services, like office visits, that primary care doctors and other generalists rely on for the bulk of their income. The result is that there are “a hundred ways to bill for removing varicose veins, and only one way to bill for an intermediate office visit,” one former RUC member told me. For another, the RUC is dominated by specialists, who have a direct interest in setting the reimbursement rates for specialty procedures much higher than for general services.

Those two factors go a long way toward explaining why we’ve seen an explosion of billing for certain types of lucrative procedures. After all, the incentives are perfectly aligned: ordering that extra test means more money for a doctor’s practice or hospital, more money for the labs, and often more money for the device makers and drug companies, too. (Oh, and, by the way, the device makers and drug companies are, not incidentally, major funders of the medical specialty societies whose members vote on the RUC.)

These manipulated prices are also a major reason why specialists are in oversupply in many parts of the country, while a worsening shortage of primary care providers threatens the whole health care delivery system. It’s precisely because the RUC has overvalued certain procedures and undervalued others that radiologists now make twice what primary care docs do in a year—that’s an average of $1.5 million more in a lifetime. While that little fact doesn’t explain everything (doctors choose their fields for a multiplicity of reasons), future income is, presumably, not entirely unimportant to a young MD.

And we’re not just talking about medical students here. Having the wrong kinds of doctors in the wrong places, with the wrong financial incentives, is one of the major reasons why Americans pay so much more for health care than do citizens in other advanced nations, and yet we live no longer.

Over the past few years, a few well-placed health care figures from both parties have spoken out—at least once they’ve left office—about how crazy this system is. “The RUC is really just a giant cabal run by the AMA,” Thomas Scully, former head of the CMS under George W. Bush, told me. “A private trade association should not have that sort of control over the biggest spending account in the government. It’s an outrageous travesty of democracy.” Bruce Vladeck, former head of the CMS under Bill Clinton, agrees, calling the RUC “a significant part of the problem.”

There have also been scathing reports issued by the Government Accountability Office, and by MedPAC, the agency that advises Congress on Medicare-related issues, as well as some hard-hitting investigative reporting by the Wall Street Journal and the Center for Public Integrity. In 2011, a bipartisan panel participated in a Senate roundtable, during which three former heads of the CMS took turns lamenting the RUC.

Yet, for the most part, the RUC continues to operate exactly as it always has—behind the scenes, without anyone, including actual doctors laboring in the clinics and hospitals across the country, even really knowing about it. (This spring, Scully told me that he went to lunch with a very high-ranking official at the CMS who had no idea how the RUC actually worked.)

The Affordable Care Act, for its part, includes a few lines that could potentially, if incrementally, limit the RUC’s power. But in general, it doesn’t much change the way the reimbursement system works. Taking on the RUC would have “started a nuclear war with the AMA,” as Scully put it, and alienated other key political allies that the administration needed to pass the law to begin with. Fixing the RUC, however, is essential to fixing health care in this country.

“Follow the money,” said Gail Wilensky, who headed the CMS under George H. W. Bush and has been critical of the RUC. “Change the way physicians are paid, and you change the system.”

The RUC, like that third margarita, seemed like a good idea at the time. When liberals were trying to pass Medicare in 1965, the staunchest opponent they faced was the AMA, which was dead set against the program on the grounds that “socialized medicine” would upend physicians’ livelihoods.

In order to get the bill passed, liberals made many big concessions to organized medicine. One was keeping the “fee-for-service” payment system, which we still have today, in which doctors bill Medicare (and private insurance companies and uninsured patients) according to every single service or procedure they perform. Another was that Medicare promised to pay physicians the “usual, customary and reasonable” rate for each of those services. One of the problems that quickly arose was that there was no benchmark for what was “usual” or “reasonable,” no nationally accepted standard for “customary” for the price of each individual service or procedure. Prices, unsurprisingly, began to skyrocket.

Someone who worked with the Bush administration in the 1980s told me a story about an ophthalmologist in Texas, known as the legendary “Cataract King.” Despite the fact that a cataract surgery had gotten much easier to perform—it took two to three hours when it was first invented, but by the ’80s clocked in at about a half an hour—he continued to charge the “customary” rate: up to $6,000 a pop. By the mid-’80s, Medicare was spending about 4 percent of its budget on cataract surgeries alone. Meanwhile, an hour-long visit with a patient resulting in a complex diagnosis fetched about forty bucks.

By 1985, doctors’ rates were, to say the least, wildly distorted and Medicare spending was outstripping the growth of both the economy and federal tax receipts year after year. Panicked, Congress amended the law in 1986 to require doctors to charge Medicare according to “historical” rates, but it was too little too late. “Historical” rates were already crushingly high, and Medicare was on the verge of collapse.

And that’s when Harvard economist William Hsiao entered the scene. In 1988, he and his team unveiled what they hoped would be a rational process for setting physicians’ reimbursement rates. The result came to be known as the resource-based relative value scale (RBRVS). By interviewing hundreds of doctors from dozens of specialties, they painstakingly compared thousands of medical procedures—everything from removing a polyp to a lung transplant—and assigned each a relative value unit (RVU) according to three main factors: one, the amount of work it takes for a doctor to perform a given procedure; two, a doctor’s practice costs; and three, malpractice liability. Every year, Congress then sets a multiplier, converting that RVU into dollars.

At the end of 1989, as part of the Omnibus Budget Reconciliation Act, Congress formally adopted Hsiao’s system, requiring that Medicare use the RBRVS in determining the prices it paid physicians. It went into effect in 1992.

The plan went downhill almost immediately. In order for the system to work in practice, new services and procedures had to be added and old ones updated every year. Certain procedures, like in the cataract surgery example, that were initially very difficult and time-consuming to perform had become steadily more routine and quicker to do, while other procedures had gotten more complex and required more skill to perform. Those RVUs needed to be adjusted accordingly. The question soon became: Who should be responsible for updating the RVUs for all those thousands and thousands of procedures?

The Bush administration, skittish of anything resembling government price setting, rejected the idea of establishing an independent council of advisers within the government. Instead, in 1991, they gave the task to the most powerful interest group in the industry, the AMA (which had, of course, graciously offered its services). “And that was the point where I knew the system had been co-opted,” Hsiao told me. “It had become a political process, not a scientific process. And if you don’t think it’s political, you only have to look at the motivation of why AMA wants this job.”

The AMA spends at least $7 million a year running the RUC, according to its own estimates, and that includes maintaining about six full-time staff members. For that, it gets a very good return on investment. The first boon is that, in order to be on the RUC, specialty societies must become dues-paying members. At a time when the AMA has struggled against being overshadowed by specialty societies, controlling the RUC prevents what might otherwise be a rapid exodus of membership. As one RUC member told me bluntly, “No one cares about AMA. They care about the RUC.” And that’s a lucky break for the AMA. In 2012, dues collection actually increased by 3 percent, topping out at $38.6 million for the year. Cha-ching.

The second boon for the AMA is that by controlling the RUC, it controls much of the source code that our health care system uses to operate. Every single one of those roughly 9,000 medical services and procedures has its own five-digit code, known as current procedural terminology (CPT), and the AMA owns them all. That means that anyone—physicians, labs, hospitals, you name it—who wants to bill Medicare, Medicaid, or a private insurance company has to purchase either AMA books and products, or products from other software companies that pay AMA royalties and licensing fees to use the CPT codes. According to its annual report, in 2012 the AMA made $83.1 million in “royalties and credentialing products,” a large chunk of which comes from licensing CPT. Again: cha-ching.

And that’s just the monetary stuff. The third boon—the real power curve—is the fact that the AMA’s control of the RUC makes it indispensible to everyone and everything in a $2.7 trillion health care industry. That includes specialty societies, primary care organizations, and medical device and pharmaceutical companies—all of whom have something big to gain or lose from the RUC’s decisions.

The AMA cannot be unaware of this staggering power. Still, its official line about the RUC is that it’s simply doing the U.S. government a favor—offering its professional recommendations free of charge. Chaired by Dr. Barbara Levy, who is also the vice president of health policy at the American Congress of Obstetricians and Gynecologists, the RUC is simply a gathering of volunteer experts who jettison their personal interests and behave “like the Supreme Court” on behalf of the public good, according to the AMA.

But in talking to a half-dozen current and former RUC members, including both generalists and specialists, the image of the committee that emerges is less a gathering of angels, cloaked by some Rawlsian Veil of Ignorance, and more akin to a health care-themed Game of Thrones. Several RUC members I spoke to mentioned that the chairwoman often reminds the committee to “Put your RUC hat on,” meaning: “Don’t think from your society’s standpoint.” But everyone I spoke to said that specialty societies on the RUC form coalitions and alliances. Two doctors told me that “personal loyalties” play a major role in determining the way that RUC members vote. “There’s no denying it’s a highly, highly, highly politicized process,” a RUC member told me.

Here’s how the process works. Every time a new procedure comes along, a special committee at the AMA called the CPT Editorial Panel decides whether or not it needs to create a new CPT code for it. The need for a new code is sometimes tied to a new device—a valve or pump or robot that, if it is to be used, requires that doctors perform a new procedure.

Importantly, it’s not the panel’s job to weigh in on whether a new procedure is more effective or cost-efficient than a traditional method. The Food and Drug Administration has to approve a new device for the panel to consider it, but other than that the panel’s job is limited. It simply decides if a new procedure is sufficiently different from existing procedures already in the CPT; if it is, then it is assigned a CPT code, and then sent off to the RUC to be assigned a relative value unit.

When either updating an old RVU or coming up with a new one, the RUC members spend most of their time debating something called “work units”—a slippery currency that combines how much time, training, technical skill, physical and mental effort, and stress are required of a doctor when performing a certain procedure or service. For example, according to the 2013 RUC database, “freezing off” a suspicious-looking lesion or freckle, known in the medical parlance as a “destruction,” has been assigned 1.22 work units; inserting a single-valve cardiac stent, 33.75.

By many accounts, the resulting debates are often spectacularly absurd. The RUC’s database features page upon page describing what exactly a doctor does when performing each procedure. How many minutes must a doctor spend waiting for a patient to get dressed or undressed? How much time does it take to scrub in, or wait around? To read a chart? Each of these questions can bring sometimes hours of haggling at the meetings.

And then there’s the even more slippery idea of how much “mental effort” or “stress” a given procedure requires. How stressful is it to, say, perform a surgery that requires a doctor to stop a patient’s heart? And, since all of these values are relative to one another, is that level of stress greater or less than having an office visit with, say, an emotionally disturbed teenager suffering from multiple illnesses?

It’s at this point that most people—both AMA representatives and critics of it—are in agreement: at best, this is a deeply imperfect system, mired by necessity in the minutiae of doctors’ actions. But while RUC supporters argue that it’s simply the best we’ve got, critics contend that by taking an already imperfect system and handing it over to precisely those groups with the biggest material interests at stake, we’re making it even worse.

Coming up with the exact number, down to the hundredth decimal point, illustrating the “work units” for a given procedure is an admittedly thankless task. But when the RUC does it, it relies to a large degree on the testimony of—who else?—the most affected specialty society on the RUC. For instance, the American College of Cardiology will give a presentation arguing for the precise amount of time and effort required to perform a cardiac stent; the urologists weigh in on how long a catheter procedure should take. The RUC’s argument here is that the most affected specialty society knows the most about how much work, time, and stress go into the procedures its members perform.

But, of course, that specialty society also has the most to gain by inflating that value. For one, it’s in that society’s direct interest to get its members paid as much as possible. For another, the most affected specialty society often receives a good chunk of its funding from pharmaceutical and medical device companies—companies that also have a direct stake in the RUC’s proceedings. When the RUC offers up generous reimbursement rates for a specific procedure, doctors generally do it more often, and that means they use more of certain drugs and devices, too. It’s a positive feedback loop—and everyone knows it.

And then there’s the fact that much of the “data” these affected specialty societies trot out in front of the RUC would not pass the laugh test in a high school stats class. After all, these specialist societies get their data from surveys of their own membership—a group of people who stand to gain directly and materially from making a procedure seem as difficult, time-consuming, and stressful as possible. And respondents can’t exactly plead ignorance. They know darn well how the results of those polls will be used, and in case they forget, the surveys are printed with a reminder: your response is “important to you and other physicians because these values determine the rate at which Medicare and other payers reimburse for procedures,” according to a 2010 Wall Street Journal article.

What’s more, RUC rules require as few as thirty survey responses—a meager sample size, even if everyone involved weren’t both self-selected and personally invested in the results. “You wouldn’t use the results of thirty surveys to determine anything, much less billions in taxpayer cash,” a former adviser to the RUC told me.

There’s good reason to take into account the experience of those doctors who perform the procedure in question, said John Goodson, a primary care physician and associate professor at Harvard Medical School who has written about the RUC, “but if the process of assigning values to physician services is to be trusted, then the profession should hold itself to the same high, evidence-based standards that it does in other domains.”

Another flaw in methodology comes from the fact that the RUC often relies on records from teaching hospitals in determining how long an operation takes, even though teaching hospitals often have longer surgery times than nonteaching hospitals. A 2006 study by the nonprofit health care research firm RTI International compared the amount of time the RUC suggested for sixty surgeries to data from 148 hospitals’ actual surgery logs. The RUC’s estimated times were often longer—sometimes by up to two hours.

Perhaps the most damning aspect of the RUC’s methodology, however, is that, while its members often spend quite literally hours debating if a certain procedure takes three minutes or just two, the RUC never so much as flicks at the question of how much—or even whether—a procedure actually benefits patients. This failure, which is part of a broader flaw in federal health care policy, is enormously damaging to the practice of American medicine. Among other things, it means that many patients wind up undergoing expensive procedures for which more effective and less costly alternatives are available.

The AMA’s main defense against the charge that the RUC skews health care spending toward specialists’ costliest procedures is that the system is self-policing. The members are working within a fixed budget, the AMA says, so they keep each other in check: if the RUC votes to raise the RVU of one procedure, it has to account for that increase by decreasing RVUs of other procedures elsewhere. And that’s true—as far as it goes. The process does indeed involve much squabbling among specialist societies, and RUC representatives do sometimes end up voting to lower codes that would positively affect their own societies. “There’s a certain calculation that happens, and people definitely vote against themselves,” a former RUC member told me.

But this inter-society bargaining occurs in a context in which there’s already a baked-in directional bias toward increasing the value of technical procedures, which are updated regularly and constantly fine-tuned, rather than cognitive or diagnostic services, which are mostly left alone. It also occurs in a context in which one side is politically weaker than the other. The most important cleavage within the RUC is between specialist doctors, who make the bulk of their money billing for procedures, and primary care doctors, who generate most of their income from office visits. While the primary care docs make up roughly 40 percent of physicians nationwide, they have only 14 percent of the votes on the RUC. Primary care physicians now have four rotating seats on the committee—up from just two seats a few years ago—out of a total of twenty-nine voting seats. (Of the thirty-one-doctor panel, two permanent seats are nonvoting positions.) Since a vote passes with a two-thirds majority, their political clout is extremely limited.

In 2005, this baked-in two-faction system erupted into a full-blown war during a RUC meeting when the two representatives from primary care threatened to leave the committee if it did not increase compensation for office visits, according to people who were present at the time. Powerful specialty societies, who didn’t want to see the amount of the pie remaining to pay for procedures decreased, vehemently opposed the idea.

Dr. Tom Felger, a former director of the American Academy of Family Physicians who was on the RUC at the time, told me that the American College of Surgeons had even created a spreadsheet, which they shared with other surgical specialties, illustrating exactly how much the RUC could increase the value of the office-visit CPT codes without affecting surgeons’ income. “They had done the math. They knew the facts,” said Felger, who represented the AAFP at RUC meetings for a decade. “When I saw it, I thought, ‘Wow-ee, this is it—now that’s collusion.’ ”

In 2007, the RUC did finally vote to increase the RVUs for office visits, redistributing roughly $4 billion from different procedures to do so. But that was only a modest counter to the broader directionality of the RUC, which spends the vast majority of its time reviewing, updating—and often increasing—the RVUs for specific, technical procedures that make specialists the most money. Because of the direct relationship between what Medicare pays and what private insurers pay, that has the result of driving up health care spending in America—a dynamic that will continue as long as specialists dominate the committee.

And despite the RUC’s vote to increase office-visit codes, the large payment gap between primary care doctors and specialists still exists. In 2012, radiologists and orthopedists made on average nearly twice as much ($315,000) as pediatricians ($156,000), while family doctors and those specializing in diabetes and endocrinology made nearly $140,000 less than urologists. “If … a primary care doctor is making a fraction of what an orthopedist is making, then that distorts the health care system in a whole variety of different ways,” said Vladeck, the former head of the CMS under Clinton. “You really have to think about what that’s doing down the line.”

One effect is that fewer young doctors choose to go into primary care. Another is that existing primary care docs cram more and more patients into their schedules to make up cost on volume and, as a result, have only a few minutes to consult with each one (see Candice Chen, “A Day in the Life of a Primary Care Doctor,” page 42). “If you run a practice and have bills to pay—that’s going to weigh on you,” says Kavita Patel, a primary care internist at Johns Hopkins Medicine and former health care adviser at the White House. “I see twenty-eight patients in a day. I spend seven to eight minutes with a patient. That’s unrealistic—it’s crazy.”

The good news is that there’s been some incremental progress in the past few years. For example, a more empirical system is now in place for selecting the CPT codes that the RUC reviews every year. The CMS has also cracked down on certain types of redundant billing. “We’ve reduced payments for high-cost imaging quite significantly,” Jonathan Blum, the current director of the CMS, told me. “And we’ve eliminated payment codes we thought were overvalued, contrary to recommendations of the RUC.”

The CMS touts that in the last couple of years it has accepted only 60 percent of the RUC’s recommended RVUs—down from an average of about 90 percent over the past twenty years. (For technical reasons, it’s fair to say that the 60 percent number is somewhat exaggerated, but it is still a step in the right direction.)

The Affordable Care Act also takes some incremental steps toward reforming the payment system. It requires that the CMS create new “mechanisms” for establishing the physician fee schedule, which can include increasing its own in-house data collection and analysis to correct, corroborate, or refute the RUC’s recommendations, especially for inputs that are more easily measured empirically, like determining how long on average a given surgery takes. To comply, the CMS recently commissioned two reports from the RAND Corporation and the Urban Institute to advise the agency on how best to do that.

The CMS, in cooperation with the AMA, is also considering rolling out new codes that may make it easier for primary care doctors to bill for services for which they weren’t previously compensated. This year, for example, they introduced two so-called transitional care management (TCM) codes that will allow doctors to bill Medicare for the time they spend helping patients transition from an in-patient setting to another community or their homes.

Yet while some of these incremental changes have been supported by the AMA and the powerful specialty societies (which, indeed, have nothing to lose from, say, TCM codes), other attempts at reform have been met with fierce push back—from organized letter campaigns to intense lobbying—and it is not clear if they will survive.

“CMS is in a no-win situation,” says Vladeck. “They’ve got extremely powerful forces making extraordinary amounts of money, and if CMS tries to change that, it’s really easy for the providers to say, ‘This is going to impair access,’ or ‘This is going to hamper care,’ even if there’s zero reality to that claim. People like doctors and nurses, and they don’t like government bureaucrats.”

Even if these incremental steps remain in place, some critics argue they are akin to frosting on a rotten cake. “You can make these tweaks,” says Brian Klepper, a health care analyst and principal at WeCare, a primary care clinic and medical management firm, “but what you’re doing is ignoring the fact that this system is fundamentally insane. It’s so corrupt and collusive, it’s not something that can be incrementally fixed.”

Long term, there are two basic options to really solving the problems caused by the RUC. The first is to take the process away from the control of the AMA and put it in the hands of a well-resourced group of experts under the auspices of the federal government. This might take the form of a panel of doctors employed by the government, or of an advisory committee of representatives of different medical societies but with greater representation of primary care doctors. While the latter set-up would hardly eliminate all conflicts of interest and political horse trading, such a committee would at least have to meet federal requirements for disclosure of all conflicts of interest. It would also be required to publish minutes from the meetings, data from any surveys used, and so forth. That would be a big improvement over the current, closed-door policy at the RUC, which, because it’s convened by a private entity, the AMA, enjoys First Amendment freedom from federal disclosure rules.

This option, however, is politically tricky. “The AMA and these medical specialty societies have power, and they’re not wild about seeing that power diluted,” said Zeke Emanuel, a former special adviser on health policy to the Office of Management and Budget and the National Economic Council, and an oncologist. “So yeah, if you ask the sober policy community, ‘Should we do this?’ their opinion is yes. But when it comes to this, the sober policy community has almost never held sway.”

In 2011, Washington Democratic Congressman Jim McDermott proposed a bill that would have furnished the CMS with resources to assemble an independent council of advisers. It was met with a strongly worded letter from the American College of Surgeons the day it was proposed and died in committee that afternoon.

Some reformers point to a provision in Obamacare that might allow for an end run around Congress. The law creates a new entity, the Independent Payment Advisory Board, which, if Medicare costs outstrip the Consumer Price Index, will have the power to cut or change Medicare provider payments unilaterally. Its decisions can be overturned by Congress only if lawmakers pass alternative cost-cutting measures of equal size. Statutorily, IPAB could create a government-run equivalent of the RUC. Whether it will ever get a chance to exercise that power, however, is an open question: IPAB is a major political target for both Republicans who are demanding its immediate abolition and some Democrats who enjoy close ties to the medical drug and device industry.

The second option to solving the RUC problem would be to get Medicare out of the business of funding fee-for-service medicine. Reformers have been complaining for years that paying providers per procedure creates incentives for gaming and overuse that are difficult, if not impossible, to overcome. Under Obamacare, the CMS is already taking modest steps away from fee-for-service billing by expanding experiments in “bundled payments,” whereby providers are paid a lump sum to take care of patients with certain conditions, like diabetes or heart disease. The AMA, aware of the growing backlash in Washington against fee-for-service, has endorsed some of Medicare’s bundling initiatives.

But we need to go much further. It’s no coincidence that numerous studies have found that the best-quality and lowest-cost health care in America can be found in systems like Veterans Affairs and Utah’s Intermountain Healthcare where doctors are on salary and paid for keeping their patients well, not according to a fee-for-service system. As this magazine has argued (see Phillip Longman, “The Cure”), the federal government should set a certain date at which Medicare will pay only for health services provided by integrated systems.

Such a move would be fiercely resisted by organized medicine, and specialist societies in particular. But it would be the surest way to control the nation’s health care costs while improving health outcomes. And it would have a delightful side benefit: with fee-for-service eliminated, there would be no need to have thirty-one doctors sit in a ballroom in Chicago and centrally plan the pricing minutia of thousands of medical services and procedures. The RUC, in other words, would be made obsolete.

How One Insurance Firm Learned to Create an Innovation Culture

More and more companies are realizing they must reinvent their cultures by infusing innovation into their DNA. Unlike startups that get to shape culture from scratch, established companies must transform existing norms, values, and assumptions in ways that inspire everyone to innovate — not just at the top of the organization, but at all levels.

One company that’s making headway on that goal is CSAA Insurance Group (CSAA IG), one of the insurance companies affiliated with the 55 million-member American Automobile Association (AAA). With almost 4,000 employees, CSAA IG has embarked on a systemic approach to create a pervasive culture of innovation. The tactics being used by CSAA IG are all ones that leaders in other companies can apply to their own innovation culture change efforts.

Early on, CSAA IG’s executive team recognized that to create a culture of innovation, the organization needed to do more than embrace individual innovation projects. To ensure a truly transformative culture change effort, the team outlined a new corporate-wide organizational strategy to sit alongside its other market-focused strategies: “Foster a culture of insight and innovation.” They also made it part of their talent management approach: Innovation was added to the company’s values statement and included as a core competency to consider in assessing, rewarding, and developing employees.

But they also realized that the term “innovation” was pretty vague; if they were measuring people on it, and making it part of their strategy, they’d have to be more concrete about what they meant by it. CSAA IG’s executive team outlined three specific types of innovation — incremental, evolutionary, and disruptive — to help employees understand their roles in fostering a culture of innovation.

Most people focus on the first type of innovation: incremental. Leadership realistically expects that the vast majority of the company’s innovation will involve smaller tweaks that advance the core business. It’s perfectly OK that most people – from call center employees to claims adjusters in the field – focus on continuous improvements to current business processes, the customer experience, and insurance products.

While the company also wants “evolutionary” (e.g., creating new digital customer experiences) and “disruptive innovation” (e.g., exploring the insurance implications of self-driving cars) as part of its innovation strategy, fewer overall resources are allotted to these larger efforts. It’s all part of CSAA IG’s portfolio approach.

To help employees spot these opportunities, CSAA IG delivers innovation training to all employees. Its program provides tools and applied exercises based on design thinking, and makes it clear that everyone can—and should—contribute creative ideas for improvement in business processes, customer experiences, and product offerings. Employees participate in a half-day program that tackles real business problems facing their workgroups, and results in a prioritized list of ideas.

This all-hands-on-deck approach to innovation training has not only provided a greater sense of ownership and engagement among CSAA Insurance Group’s workforce, it has produced tangible results. For example, a team of insurance underwriters analyzed call data and led improvements to voice prompts that reduced misrouted phone interactions to their department by 40 percent. Other teams have helped streamline the process for issuing proof of insurance cards and are contributing to prototyping efforts for “smart claims” systems, allowing customers to submit images of damaged property for online assessment.

There’s nothing worse for a company’s innovation culture than soliciting ideas and doing nothing with them. So to ensure that employees’ ideas actually get implemented, CSAA IG’s managers are expected to engage their teams after the training sessions to select specific ideas to implement based on what everyone just generated. Employees also have access to CSAA IG’s “Innovation Hub,” an online portal, that includes a self-service smorgasbord of resources including a design thinking toolkit, calendar of innovation-related events, self-paced training materials, articles from innovation experts, and more. The company also set up an idea management platform, where various departments can post their innovation challenges, and where the crowd can contribute, evaluate, and develop solutions.

To help generate excitement for the idea management platform, during the first online innovation challenge event, anyone who submitted an idea was surprised with a physical paper light bulb posted in their cubicle workspace. With light bulbs popping up all around the office, employees’ motivation to participate skyrocketed – and the company’s first online challenge received an 80% participation rate.

Creating a culture of innovation is about much more than hiring a Chief Innovation Officer or creating a new department. Culture change takes time and significant effort, and shifting culture toward innovation is no different. The process may start at the top, but it’s fundamentally about getting all employees involved.

Over 16 million text messages are sent in one internet minute in 2017.Image: REUTERS/Alessandro Bianchi

Just a month ago, it was revealed that Facebook has more than two billion active monthly users. That means that in any given month, more than 25% of Earth’s population logs in to their Facebook account at least once.

This kind of scale is almost impossible to grasp.

Here’s one attempt to put it in perspective: imagine Yankee Stadium’s seats packed with 50,000 people, and multiply this by a factor of 40,000. That’s about how many different people log into Facebook every month worldwide.

A smaller window

The Yankee Stadium analogy sort of helps, but it’s still very hard to picture.

The scale of the internet is so great, that it doesn’t make sense to look at the information on a monthly basis, or even to use daily figures.

Instead, let’s drill down to just what happens in just one internet minute:

Created each year by Lori Lewis and Chadd Callahan of Cumulus Media, the above graphic shows the incredible scale of e-commerce, social media, email, and other content creation that happens on the web.

Have you read?

If you’ve ever had a post on Facebook or Instagram fizzle out, it’s safe to say that the above proliferation of content in our social feeds is part of the cause.

In a social media universe where there are no barriers to entry and almost infinite amounts of competition, the content game has tilted to become a “winner take all” scenario. Since people don’t have the time to look at the 452,200 tweets sent every minute, they naturally gravitate to the things that already have social proof.

People look to the people they trust to see what’s already being talking about, which is why influencers are more important than ever to marketers.

Eyes on the prize

For those that are able to get the strategy and timing right, the potential spoils are salivating:

The never-ending challenge, however, is how to stand out from the crowd.

Ironically, the same health care system that worked miracles “down range” in Iraq and Afghanistan faces mounting criticism at home. How can this be? In part, it is because the military health system has two distinctive missions: support combat and humanitarian assistance missions overseas and provide comprehensive health services to millions of service members, their families, and military retirees at home.

The core mission of the military health system is unique. Unlike the Department of Veterans Affairs (VA) and large, private health care systems, the military health system must be ready to deploy thousands of health care providers to the other side of the world at a moment’s notice and fly critically wounded warfighters home within one to three days of injury [See Photo Above]. Since the founding of our Republic, military medicine has supported our armed forces whenever and wherever they go in harm’s way.

The other mission of the military health system is to deliver health care at home through a network of military hospitals and clinics, supplemented by health care purchased from thousands of private doctors and other providers. This second mission reinforces the first: Service members stay healthy, and when deployed, they can be confident that their families will be looked after. Military health care providers between deployments maintain their clinical skills by treating service members and millions of beneficiaries. Military hospitals provide valuable platforms for teaching the next generation of uniformed health care professionals and standby capacity for combat casualties.

The Current Challenge

Some critics allege that the military health system’s stateside mission costs too much, delivers care of uneven quality, and doesn’t attract enough complex cases to keep provider skills sharp between deployments. They want the Department of Defense to close most of its remaining facilities, outsource the care to the private sector, and position more military providers in civilian hospitals. Before these ideas receive serious thought, it is worth examining the assumptions on which they are based:

Costs

According to the Congressional Budget Office (CBO), the Department of Defense spends $52 billion, about 10 percent of its budget, to provide a variety of services to 9.4 million beneficiaries. This total includes costs not counted by civilian health systems, such as $1 billion annually for military health research and billions more for “TRICARE for Life,” a first-dollar, wraparound plan Congress mandated to supplement the Medicare coverage of military retirees. In fact, yearly spending varies by $2 billion or more due to fluctuations in military construction. To put this in context, in 2016 Kaiser Permanente collected $64.6 billion to care for its 11.3 million members. The Department of Defense’s FY2017 budget for military health is $48.8 billion to care for its 9.4 million beneficiaries.

Growth in health care spending is not limited to the military. Civilian health spending has outpaced our nation’s economy as far back as 1950. Between 1999 and 2009 alone, health spending grew so fast, it wiped out the income gains of average US families. Military health spending grew too, but recently it has increased at a far slower pace than civilian health spending. According to the Centers for Medicare and Medicaid Services (CMS), between 2009 and 2015, civilian health spending increased 32.6 percent. During the same timeframe, military health spending grew 13.9 percent (See Exhibit 1). A recent analysis produced by the CBO attributes most military health spending growth since 2000 to congressionally mandated expansion of TRICARE benefits, including the establishment of TRICARE for Life, an insurance option that eliminates most out-of-pocket costs faced by Medicare-eligible military retirees and their families.

US health care is not only costly; it is inefficient. The National Academy of Medicine estimates that our nation wastes $750 billion per year on “unnecessary or inefficient services, excessive administrative costs, high prices, healthcare fraud and missed opportunities for prevention.” In 2015, aggregate health care spending approached $3.2 trillion dollars. Only 1.5 percent is devoted to military health. Given these facts, it is hard to see how outsourcing more care will save money.

Quality

Critics assert that the military health system does not perform enough complex surgical procedures in peacetime to maintain provider skills. The volume-quality relationship is strong, but it is not absolute. High-quality training and strict adherence to procedures—an approach first championed by military aviation—can largely compensate for smaller case volumes. In 2014, the military health system compared its performance to three of our nation’s top health care systems—Geisinger, Intermountain Healthcare, and Kaiser Permanente—and found that it did better in some areas, worse in others, and generally as well overall.

Productivity

Is the military health system less productive? That depends on how productivity is defined. Because most civilian hospitals rely on fee-for-service billing, their staffs have a strong incentive to see lots of patients and order large numbers of tests and treatments. This translates into the appearance of productivity as measured by “relative value units” (RVUs)—the most commonly used metric of clinical workload. There are two problems with this approach, however. First, RVUs measure the volume of care, not its value. It doesn’t even matter if a procedure helped the patient; it only matters that it was done. Second, RVUs undervalue primary care and overvalue procedures performed by specialty providers. As a result, keeping patients healthy looks less “productive” than filling hospital beds and performing lots of complex procedures.

Consider the previously-mentioned study of military health system beneficiaries with carotid artery stenosis. Although military doctors performed fewer expensive procedures and the patients they treated were less likely to die or have a stroke than those treated by fee-for-service doctors, judicious management looks less “productive” since it generates fewer RVUs.

The purpose of the military health system is to protect the health of the force, not to generate RVUs. In 1866, Dr. Jonathan Letterman, the “father of battlefield medicine,” wrote: “A corps of medical officers was not established solely for the purpose of attending the wounded and sick. The leading idea is to strengthen the hands of the Commanding General by keeping his army in the most vigorous health, thus rendering it, in the highest degree, efficient for enduring fatigue and privation, and for fighting.” In light of this responsibility, using RVUs to assess the clinical productivity of the military health system makes as much sense judging the effectiveness of a combat unit by counting the number of bullets it shoots.

Finding A Better Way

Rather than dismantle the military health system, policy makers should let it operate more efficiently. Among the options that follow are four opportunities created by provisions embedded in Section VII of the 2017 National Defense Authorization Act (NDAA):

Make greater use of enlisted providers—Overseas and aboard ships, the military health system relies on its corpsmen, medics, and med techs to deliver routine care under supervision, as well as save lives in combat. However, the moment these skilled providers come home, they are relegated to minor clinical or clerical tasks because no comparable role exists in civilian health systems. If the military health system allowed them to function as “primary care technicians,” it could expand access to care, reduce use of emergency departments and urgent care centers, and strengthen readiness for future deployments.

Consolidate treatment of complex cases—When a service member is wounded in combat, he or she is MEDEVACed to the nearest combat support hospital, then flown by Critical Care Air Transport to a stateside military hospital. Two decades ago, the military health system used a similar approach inside the United States to concentrate complex care to its top medical centers. If it reinstituted the practice, patients and taxpayers would benefit. Studies show that Walter Reed’s Murtha Cancer Center achieves better outcomes at lower cost than comparable civilian cancer centers.

Systematically improve practice—Many of the advances in trauma care in Iraq and Afghanistan came from the Joint Trauma System, which systematically analyzed casualty data to identify opportunities to improve. If the military health system employed a similar approach to assess delivery of high-risk care in stateside hospitals, it could ensure that beneficiaries get the right care at the right place for the right reason.

Standardize to optimize—The US armed forces have learned the value of training and fighting as a joint force. Military health care providers have learned the same lesson in combat zones but when they return home, they tend to revert to the old ways. Some variations in approach are inevitable, but the military health system should strive to standardize key workflows, equipment, and even the layout of its operating rooms and delivery suites. That way, when a military health system provider rotates to a new hospital, he or she can swiftly integrate into a new health care team.

Keep patients healthy—In war zones, protecting the health of the force is a top priority. Taking an equally diligent approach to population health at home could produce substantial benefits. Redoubling efforts to boost rates of vaccination, discourage smoking and use of smokeless tobacco, prevent injuries, and treat hypertension and obesity could generate huge downstream savings.

Treat selected civilians—In war zones, commanders have the latitude to treat ill and injured civilians if doing so will help win the support of the local population. Currently, most lack this authority in the United States. At present, only two military medical centers participate in their state’s trauma system. If more were allowed to do so, their medical staffs would benefit from the extra caseload, and the civilians they treat would benefit from the world-class trauma, burn, and rehab care available at these medical centers. Any VA hospital with a waiting list should preferentially refer its patients to the closest military hospital. Section 717 of the NDAA should facilitate the needed changes in policy.

Ensure clinical proficiency—Military surgeons are already partnering with the American College of Surgeons to devise objective ways to assess surgeons’ readiness to deploy. Recently, they devised a way to cross-walk Current Procedural Terminology codes used to track performance of surgical procedures to critical wartime surgical skills. Once this approach is refined, it will be extended to other wartime specialties such as emergency medicine, anesthesiology, and intensive care. This will help the military health system comply with Section 708 of the NDAA.

Measure what matters—To ensure military providers address the “quadruple aim”—readiness, better health, better care, and lower per capita costs—the military health system has adopted 30 “Partnership for Improvement” measures. Adopting a smaller, high-yield set of “vital signs” metrics devised by the National Academy of Medicine would allow military health system leaders to compare their system’s overall performance to other large health systems and satisfy Section 730 of the NDAA.

Embrace Telehealth—In deployed settings, the military health system uses telehealth to support health care providers working in small forward operating bases and on ships at sea. Global teleconferencing allows trauma experts across 12 time zones to regularly meet, discuss complex cases, and identify opportunities to improve. Despite its success with telehealth overseas, the military health system was slow to adopt it at home due to stringent information security requirements and budgetary constraints. Section 718 of the NDAA directs the military health system to rapidly expand the use of telehealth in its clinical operations.

Centralize licensure and credentialing—Typically, military health care professionals change duty stations every two or three years. Federal law allows those licensed in one state to practice in others, but only on federal property. If providers could reach outside their treatment facilities, the military health system could fully use telehealth and improve access to care. Provider credentialing is equally cumbersome. Although the military health system has a global reach, it still credentials most providers at the facility level. A systemwide approach makes more sense.

Facing the Future

In Iraq and Afghanistan, the military health system demonstrated a remarkable capacity to innovate when necessary to protect the health of US and coalition forces. Dr. Don Berwick, founder of the Institute for Healthcare Improvement, recently observed that “Military medicine put the learning health system framework into practice before the Institute of Medicine described it.” Today, US soldiers, sailors, airmen, and Marines know that if they are badly wounded in combat, the military health system offers their best chance of coming home alive and recovering. This confidence is a force multiplier on the battlefield.

Looking forward, we cannot assume that future conflicts will resemble the most recent ones. As US forces evolve to meet the threats posed by near-peer adversaries, the military health system must evolve, too. The best way it can maintain readiness to support combat operations and strengthen its capacity to innovate is to employ the same techniques, teamwork, and enterprising spirit that serve it so well “down range” to meet the health care needs of its beneficiaries in the United States.

Coaches often remind their teams that “You play the way you practice.” By “practicing” at home the way it “plays” overseas, the military health system can deliver better care at lower cost and strengthen its capacity to support and sustain our armed forces on any future battlefield.

Exhibit 1: Military Health Spending, 2006–2015

Source: National Health Expenditure 2015 Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group from the methodology paper. Note: Department of Defense spending for health care services (hospital, ambulatory care, provider, diagnostics, pharmacy, etc.) an this total does not include the cost of accrual payments made to fund TRICARE for Life. Non-Military: Includes out of pocket, private insurance, Medicare, Medicaid, CHIP, VA, Worker’s compensation, Indian Health Services, General Assistance, Vocational Rehabilitation, maternal/child health, other federal and state programs that provide subsidies, high risk pools under ACA, school health, public health, SAMHSA treatment services, investments in research and facilities. Total spending for health care, including federal and state programs, private health insurance, and out-of-pocket spending. Column numbers may not add to totals due to rounding. Dollar amounts shown are in current US dollars.

Author’s Note

The author is dean of the School of Medicine at the Uniformed Services University (USU) of the Health Sciences, and as such he is an employee of the Department of Defense. His views are his own and do not necessarily reflect those of USU, the military health system, the Department of Defense, or the US government.

“We cannot solve our problems with the same thinking we used when we created them.” —Albert Einstein

Vinton G. Cerf is Vice President and Chief Internet Evangelist for Google. He contributes to global policy development and continued spread of the Internet. Widely known as one of the “Fathers of the Internet,” Cerf is the co-designer of the TCP/IP protocols and the architecture of the Internet. He has served in executive positions at MCI, the Corporation for National Research Initiatives and the Defense Advanced Research Projects Agency and on the faculty of Stanford University.

Cerf is also focusing on putting humanity at the center of the Internet. To do this, Cerf serves as the Chairman and co-founder of the People Centered Internet (PCI). The People-Centered Internet (PCI) believes in putting humanity – people and their needs and aspirations – at the center of the Internet. PCI is committed to using the power of the Internet to improve the lives of the global poor by collecting data that can be used to transform communities and meet basic needs.

“The Internet provides unprecedented access to education, medical assistance, economic opportunity, services and personal connections. Yet of the seven and a half billion people on the planet, less than half are online today. People-Centered Internet exists to change this. PCI is an international coalition created to connect the dots, fill in the gaps, and unite humanity. Founded and chaired by Vint Cerf, the Internet’s co-inventor and architect, People-Centered Internet is central to activating international commitments to make sure the Internet reaches everyone.” — People Centered Internet

The mission of the People Centered Internet is to make the internet useful for people in some measurable way. It is about making information more locally available, across multiple languages, and to help people with their health, well-being and ability to work. The point is to pay attention to the Internet infrastructure and applications to benefit people. It is more than just access to the Internet infrastructure, it is also about access to the applications that can help improve the quality of life and work.

Large Scale Change Requires Strong Selling Skills

According to Cerf, in order to create the conditions for success, and to be a successful change agent for large scale initiatives, you must be able to sell your ideas to other people. “You won’t do anything very big, if you cannot convince other people to do what you want to get done,” said Cerf. Once you can learn to sell your idea, and motivate people, then you can effectively drive change. Cerf reminds his engineers to master the craft of selling their ideas in addition to building products.

Large Scale Change Must be Network Driven

Dr. David Bray notes that technology can bring people together in order to create positive outcomes. The goal of PCI is to provide expertise and the power of the community to help improve the quality of life and work around the world.

Artificial Intelligence (AI) Will Be a Benefit to Society

According to Cerf, AI and machine learning will be used as tools to augment our ability to do things better. Cerf spoke about Google search as an example benefit. He also talked about language translations via machines to help connect with people around the world. Cerf notes that we are already using AI in everyday applications that are hidden from us. Cerf is not ready to discount the concerns regarding autonomous software – software that is running on its own that may make mistakes. We must ensure there is enough care and control to ensure proper software behavior powered by AI.

Reduction of Cost, For Both Technology and Access, Will Lead To An Expanded Internet

Cerf believes that we are driving cost out of devices that are needed to access the Internet. He referenced the Google Chrome Book as a great contribution towards Internet access using affordable technology. The cost for access will also come down, if we can encourage competition. Countries can adopt rules to invite competition and this will drive costs out. Cerf notes that that the digital divide is largely an economic one.

If You Want To Make a Big Impact, Solve a Real Problem

Cerf reminds us of Jeff Bezos as an example of someone who was thinking bold by building the biggest book store in the world. But Cerf didn’t start off by changing the world. He simply wanted to solve a problem that would make a difference. Cerf advice to change agents is to work on solving a real problem. Cerf shared a parable with us about solving a real problem by being smart and focused.

Find The Right Pebble, Not Another Boulder

The pebble and the boulder parable by Vint Cerf: Imagine that you are living in a little town in a valley, surrounded by mountains, and there is a giant boulder at the top of the mountain. One day you notice that the boulder is about to roll down the hill and destroy the village. Now you know that you cannot run up the hill and stop the boulder – you are too small, the boulder is too big. But you are smart and you know that if you find a pebble, of the right shape, and you put it in the right place, it will divert the boulder. So that’s your job. Find the the pebble that can divert the boulder and then make a big difference. The secret is finding the pebble, not another boulder.

Mr. Cerf also talked to us about the invention of the world wide web, search engines, social networks and other technologies that stemmed from the Internet. Please watch our full interview with the Vint Cerf, the Founding Father of the Internet and Co-Founder and Chairman of the People Centered Internet.

Mei Lin Fung founded the People Centered Internet chaired by Vint Cerf. She is the founding Unit Coordinator for the California Health Medical Reserve Corps. As an early pioneer, Mei Lin co-designed the first CRM system at Oracle. Mei Lin has served as the technical lead for the US Department of Defense’s initiative on the Future of Health, and is a member of the Digital Economy and Society World Future Council of the World Economic Forum. She also serves as vice chair of the Internet Inclusion IEEE sub-committee, one of 3 tracks under the IEEE Internet Initiative. You can follow Fung on Twitter at: @meilinfung.

The important lessons learned by speaking to Mei Lin Fung included:

The Power of Communities Drive Innovation and Inventions

Fung believes that we achieve more, and do good, by creating a condition for success based on communities. The guiding principle for PCI is to help expand and develop an Internet, by the people, for the people.

Fung reminds us that we have to be people centered as we evolve and expand the Internet to the 4 billion people today that do not have access to Internet. Fung is one of the most positive and passionate people that I know. She is an incredible connector and beacon of light for many technologist, entrepreneurs and business leaders.

Fung spoke to us about the PCI efforts regarding the rebuilding of Puerto Rico. PCI is working with network of 81 health centers in Puerto Rico to rebuild the digital infrastructure after the devastating storms of 2017. Using a network of networks, PCI is determined to help improve the current and future state of Puerto Rico. Fung spoke about the importance of ‘people centered’ communities that shift from top-down mandates towards breakthrough collaborative environments that achieve far more.

Dr. Bray reminds us that movements begin when you can set a vision that is informed by listening to the community. The art of working towards a shared goal, up front, then leads to a collation of change agents to drive positive outcomes. Set the vision, establish a shared goal, and finally help the community make forward progress. To be adaptive and responsive, PCI is working towards empowering the edge to measurably improve the quality of life using the Internet.

Fung shared incredible statistics regarding the efforts to rebuild Puerto Rico. She is also reminds us that anytime she digs into any community, she finds amazing gifts and talents of the community, including the incredible change agents who are working with PCI to assist with regaining power and other infrastructure rebuilding initiatives.

Afters speaking Fung, we invited an inspiring public servant and positive change agent to discuss the importance of inclusion and diversity for business to achieve greater positive outcomes.

Teresa Booher is a program analyst at the National Institutes of Health OCIO. She is a role model public servant and a positive change agent. Teresa joined the federal government as a public servant in 2011. While her primary role focuses on IT Policy and Strategic Planning, her work extends well beyond her official position. Teresa has been a featured speaker across government and private industry sharing her experience and encouraging accessibility and inclusion, particularly in the IT space. Teresa has been actively engaged in activities to promote inclusion of persons with disabilities. In 2011, she spearheaded the establishment of a blind and low-vision resource sharing group, 3 Blind Mice, and continues to lead the group today.

Booher’s life took a big change when she went from being fully sighted to being blind essentially overnight. Booher spoke about the fact that the largest minority population in the US is people with disabilities, and yet when most companies talk about inclusion and diversity, the discussion is less about disabilities.

“Diversity and inclusion of disabilities is one categorization that does not discriminate,” said Booher. It stretches across all ages, all races, all sexual preferences, and religions. Disabilities will include all and most disabilities are acquired at some point in your life – not something you are born with. It is a matter of when. The longer you live, the more likely that you will acquire a disability – hearing, vision, etc. Any impact on a system of your body, that influences how you live is a general definition of disabilities.

Booher is very optimistic about new technologies like AI (machine learning, natural language processing) that can further empower individuals with disabilities. When product designers consider improving products for all, then build better and smarter products and services.With technology and pace of innovation at current rates, there is great optimism with respect to possibilities to improve the quality of life and work experiences.

Loss of vision did not define Booher. She is an incredible positive change agent and a relentless champion for informing, education and inspiring organizations to be mindful of inclusion and diversity as it relates to the population with disabilities. I highly encourage you to watch our conversation with Booher – she will inspire you to become a positive change agent.

Ray and finished our conversation by speaking to Dr. David Bray about PCI and his areas of focus for 2018.

Dr. David A. Bray is the Executive Director at the People-Centered Internet, focused on providing support and expertise for community-focused projects that measurably improve people’s lives using the internet. . Dr. Bray was named one of the top “24 Americans Who Are Changing the World” under 40 by Business Insider in 2016. He was also named a Young Global Leader by the World Economic Forum for 2016-2021. Dr. Bray He accepted a role of Co-Chair for an IEEE Committee focused on Artificial Intelligence, automated systems, and innovative policies globally for 2016-2017 and has been serving as a Visiting Executive In-Residence at Harvard University. He was named the most social CIO in the world in 2016 so he is a must follow on Twitter: @chief_ventures.

Dr. Bray summarized our conversation by reminding us that it is not about a technology or individual, but rather the community and the network of networks that drive large scale change. Bray also reminds us that the obstacles and diversities that we all face at some point in our lives does not have to define us. Dr. Bray said that real change happens when people connect with other people and respect each other, even if our points of view differ. Ray Wang reminds us that we must be the change that we want to see the world. Change has to start with you. We closed our show with a haiku from Dr. David Bray:

As the Christmases add up in our lives, we probably find ways to distinguish one from another. One might be in the year of the big snowstorm, or that in which temperatures on Christmas Day hit 70 degrees. We might mark them by references to changes in family dynamics, the first with a new daughter-in-law or grandbaby, the first spent without a son and family who have moved to the west coast or a grandparent who has moved beyond places we can find with Google Maps

For most of us, 2017 will be the first Christmas with Bitcoin, or perhaps more accurately, “Bitcoin consciousness.” After all, Bitcoin has been around a while, but it has just drifted into awareness for most of us now that it has come to be traded on the futures markets in a couple of locations and now that its relative value has soared

What is Bitcoin? Well, it’s a cryptocurrency. That’s hardly a helpful response. “What’s that?” Well, one way of thinking about it is as “limited entries in a database that no one can change without fulfilling specific conditions.” Huh? I’d certainly never invest in that. So, try this. Currency is always based on value. First, it was the value of precious metals. Soon it became the value of a central authority, typically a nation state or at least a central bank. With cryptocurrencies, actors have faith in a “consensus network” which agrees that Investor 1 has Bitcoin of n value, some portion of which he is free to transfer to Investor 2 in return for something bearing a mutually agreed upon value

What? Isn’t this supposed to be a Christmas letter? This sounds like one that should come have come out on the 30th anniversary of Black Monday a couple of months ago or one that would be better saved for Black Friday next year. Well, maybe, but don’t overlook the connection. What thrills (or frightens depending on perspective) Bitcoin enthusiasts so much is that its value comes from a decentralized consensus network. Instead of trusting the probity of a particular government, investors trust two things: the network and mathematics

This would be quite the jolly holiday epistle if I started discussing mathematics, so let’s focus on that idea of a consensus network. Isn’t that fundamentally what we have here at La Salle College High School, regardless of the perspective from which we join the network? Whether our commitment to this school spans four years or 40, belonging here tends to ensure that we emphatically concur that:

The potential of young people is not something to take for granted, but something to invest in—whether you are a parent, a teacher, or someone who followed the same path in earlier times;

The high school years are among the most influential in a man’s life, whether he is going through them right now, or looking back on them from the perspective of 50 years out;

That adults who function not as relentless taskmasters, not as reservoirs of erudition, not as chummy avatars of arrested development, but as wise older brothers and sisters, vigilant without being suffocating, prescient about what is to come without defining that future reality, are those best likely to form the character of that Christian gentleman we hold up as an ideal;

That gentleness itself, however much it may be devalued in our recent national or global discourse, is a trait to be both respected and nurtured;

That advantages, whether intellectual, athletic, economic, social, or psychological, are only given us for the general good, for the creation of community, to advantage the least advantaged, and, ultimately, to build up the Body of Christ;

That the people surrounding a student at La Salle are not merely classmates, interchangeable seat-fillers assigned in forty-minute increments over four years. Rather, all are windows opening into the Presence of God, and many are destined to be brothers for life;

That life, whether looked at from the perspective of 18 or 81 years, is not best viewed as project to be completed, battle to be won, or trial to be endured, but as Sacrament: a privileged encounter with the living God.

Such values are true throughout the year, of course, but at Christmas, our network focuses on a few other subjects of clear consensus:

That God loves us enough to enter into our human reality, not only once for all in Bethlehem, but in the people we encounter and the events we participate in each day, people and events we may only make time to reflect on the significance of in the season of Christmas;

That God loves us not based on how we shape up against some “centralized authority” defining the ideal for a married couple, the epitome of family relationships, or even a paragon of fidelity to the Catholic religious life, but just exactly as we are–flawed and bumbling, untidy and short-tempered, resentful and corner-cutting–loves us even while we’re scraping the burnt edges of the crescent rolls off into the trash, because “where are you going to find someplace that sells this dough at 3PM on Christmas Day?”

That such careful salvage activity speaks not only of a poorly calibrated oven temperature. It speaks of love, love for that smorgasbord of personality quirks you call a family and call to your table this Christmas, the love of the Father who gave us His Son to share our lives and understand our experience, the love of a young woman who responded to the overwhelming and ineffable with the stunningly simple, “Be it done unto me according to your word.”

Time will tell whether Bitcoin heralds the dawn of a new economy that some have predicted. Time has shown, however, that nothing in the history of joy compares with the transforming potential brought by that first Christmas day. May such joy be felt in your hearts and those of your families this Christmas morning…and Forever!